So I heard your side hustle is strong — So is the Tax Man’s
Driving for any of the popular ride-sharing/delivery services can be a great way to supplement your income. Heck, it might just be the only source of income you need. But did you know that Uber or Lyft won’t withhold your taxes from the payments that you receive from them? What does that mean for you? It means that it’s up to you to pay for your own income taxes. But before you go paying taxes based exclusively on what you were paid, it’s up to us to let you know that you can reduce that payment by keeping track of your deductions.
What are deductions, you might ask. Deductions are amounts that reduce your taxable income. So if you’re driving for Lyft, that might mean that you can deduct $0.55 for every mile you drove for them. Or, if you want to track your business deductions, you could keep track of the gas that you used while driving for them. You could also deduct payments that you made when you bought new tires for your car, or the money you paid to have that dent in the door repaired. You could even deduct the water bottles and packets of gum that you so dutifully provide for your fares. In reality, the list of deductions is quite lengthy. Since you use your phone to pick up fares, your monthly cell phone bill becomes tax deductible, even the car washes that you use to keep your ride looking fresh and your ratings sky high.
But, if you’re going to use these expenses as deductions, you have to keep track of them. In other words, if you don’t track them, you can’t subtract them! In the event that the IRS audits your tax return, they’re going to want to see evidence of these expenses. And that’s when you’re going to impress them with the neat compilation of receipts that you’ve so handily maintained. And your Taxfyle CPA will have no problem preparing your tax return faster than Jimmy John’s can get your sandwich to you.
Any expenses that you might incur that can relate to both your personal use of the car and your business use of the car should be pro-rated based on the total mileage that you drove during the year. That means that if you drove a total of 10,000 miles during the year, and 8,000 of those miles were for business, you can deduct 80% of all your expenses (i.e. gas, maintenance, repairs, insurance, lease payments, etc).
So if you’re going to get organized, here are a few tips:
1. Use a separate debit/credit card to keep track of your expenses
2. Keep those receipts… And keep them organized — consider using a receipt tracking app
3. If you’re just going to use the standard mileage deduction ($0.54/mile) then you won’t need to keep track of receipts related to gas or car maintenance. However, you do need to keep track of the miles you drove for your ride-sharing service
4. Make estimated payments to the US Treasury every quarter
5. Leave it to a pro — let a Taxfyle CPA prepare your taxes for you. It’ll be done right, and it’ll be done quickly.
These are some simple things you can do to keep your taxes down and your tax preparation under control. You can also check out our Financial Wellness Webcast
Ralph Carnicer CPA, ping-pong table owner, beard connoisseur, powerpoint master!
